Every six months, Brazilian investment bank BTG Pactual, through boostLAB, its hub focused on technology companies, starts a new round for an advanced mentoring program for startups called Scale-ups. Next Monday (3), BTG starts to receive registrations (until June 25) from Brazilian banking-related startups that want to participate in the next round.
It is the eighth program edition, which in its last round had 450 subscribers. The competition is tough: boostLAB selects only five to 10 startups with at least two founding entrepreneurs exclusively dedicated to the business and billing (that is, with customers, regardless of amount).
The idea of boostLAB is to connect those startups, entrepreneurs, funds, or other startups that want to make a good deal, as the head of the hub, Frederico Pompeu, told LABS. In other words, BTG’s agenda behind the initiative is for each of these startups to remember the bank when, in the future, they decide to go public. It is a long-term investment, focusing mainly on relationships.
Exclusive credit line for startups
BTG started using services from startups that went through the acceleration program, and so it was natural for the bank to invest in companies that had a strategic fit.
In addition to the acceleration and mentoring program, BTG promises to help these startups with foreign exchange, and automated corporate venture and venture debt credit lines – most commonly used form of investment in the United States and China – , with rates of 1.8% per month and a grace period of up to six months.
BTG‘s new credit line for startups works as working capital for smaller tickets, ranging from BRL 200.000 to BRL 4 million. To grant the loan, the bank uses the company’s monthly recurring revenue as collateral. It only lends money to startups invested by an institutional fund, such as a venture capital fund.
In the venture debt modality, the bank has a fixed income component and an equity kicker (equity kicker is a variable component of remuneration paid to the creditor that is equivalent to a percentage of the valuation achieved in the equity round following the venture debt).
A successful case of BTG’s venture debt was the acquisition of the e-commerce platform Buscapé by Zoom, a search engine. “We made this dealing and then took the Mosaico‘s IPO (parent company of Zoom and Buscapé). We formed a strategic partnership between BTG and Mosaico, in which they will develop the marketplace within our app and we have exclusivity to offer credit and insurance to their customers,” Pompeu explains.
With Mosaico, BTG financed the debt, made the IPO and converted the kicker into company equity, in which BTG is now a shareholder. In the case of the startup Brasil ao Cubo, BTG also financed the debt, and afterward, Gerdau invested in the company. In this case, BTG did not become an equity kicker, but gained an upside in the startup‘s valuation.
Google, Facebook, Uber, Spotify, Zoom, Beyond Meat, Lyft, Pinterest and Dropbox are among the most famous companies that have already done venture debt.
According to Pompeu, the venture debt fits with a moment of inflection for companies, when the startup is going to buy a competitor, or when it is going to expand, which demands a bigger investment. Therefore, it is not a working capital line. It works like this: instead of selling shares, the startup takes a debt, and postpones the payment until after the sale of its shares. In such cases, BTG only evaluates tickets from BRL 10 million.